By Jonathan Lawrence, Lian Yok Tan and Matthew Mullarkey, K&L Gates
Indonesian Islamic Finance Initiatives
Article Overview
Indonesia, the world’s most populous Muslim nation, is currently taking action, at both the local and international levels, to distinguish the country in the global Islamic finance markets.
Locally, the government has unveiled plans to introduce regulatory changes to promote Shariah-compliant financial tools and establish a state-run Islamic bank to develop the country’s potential as an Islamic financing hub in Southeast Asia.
Internationally, Indonesia is taking steps to partner with China, countries from the Middle East and Turkey to establish multilateral development financing institutions that will serve the purposes of (i) solidifying its relationships with key global Islamic-compliant players and investors and (ii) meeting its demand for infrastructure financing over the next five years.
If this dual strategy unfolds as currently proposed, Indonesia may find itself playing a more prominent role in global Islamic finance, potentially attracting investors looking to fund future projects.
Indonesian State-Owned Islamic “Megabank”
The most notable initiative is the potential creation of a state-run Islamic finance “megabank”, announced in June 2015. The “megabank” would be the result of combining the Islamic financing arms of four state-owned banks: PT Bank Rakyat Indonesia, PT Bank Mandiri, PT Bank Negara Indonesia and PT Bank Tabungan Negara. It is expected that the combined Shariah-compliant assets of the “megabank” would total over US$8 billion, nearly half the total assets of all Islamic banks in Indonesia.
